Viewing cable 03LAGOS2147

03LAGOS21472003-10-17 16:22:00 2011-08-30 01:44:00 SECRET//NOFORN Consulate Lagos
This record is a partial extract of the original cable. The full text of the original cable is not available.

171622Z Oct 03
S E C R E T SECTION 01 OF 02 LAGOS 002147 
E.O. 12958: DECL: 10/16/2013 
REF: A. LAGOS 2100 
     ¶B. ABUJA 1737 
     ¶C. LAGOS 2078 
Classified By: JGREGOIRE FOR REASONS 1.5 (B) AND (D) 
 ¶1. (C) Summary: The status of fuel supply and pricing in 
Nigeria remains in question as fuel marketers and labor 
leaders left a stakeholders' meeting on October 16 with 
little agreement but significant distrust and resentment. 
Labor promises mass action at retail stations if marketers do 
not sell gasoline at the price of 34 naira per liter.  Mobil 
fears it will be targeted for action, possibly including 
violence.  A technical committee will meet in early November 
to discuss the mechanics of deregulation, but its likely 
effect is questionable, and hard decisions regarding supply 
and price must be made in the interim, leaving a volatile 
situation in place. End Summary. 
¶2. (C) A nationwide strike was averted in Nigeria late on 
October 8 when labor, fuel marketers, governors and national 
legislators agreed to form a Petroleum Stakeholders Committee 
(PSC) to discuss the deregulation of the downstream sector, 
which President Obasanjo imposed abruptly the week before 
(reftels).  The Nigeria Labor Congress (NLC) publicly 
described the agreement as also keeping fuel prices at 34 
naira per liter, at least in the short-term (this was the 
government-imposed ceiling until the president's action of 
October 1). 
¶3. (C) Confusion and hostility was seen throughout the 
country this last week as fuel stations charged varying 
prices for fuel (ref B), or failed to open altogether because 
managers did not know at what price to sell or feared union 
action.  Adding to the confusion was the arrival of a 
shipment of fuel imported by private marketers (ref A). 
¶4. (S/NF) The inaugural meeting of the PSC was held in Abuja 
on October 16.  A communique issued after the meeting by the 
Governors' Forum states that the Committee agreed to form a 
technical committee to "harmonize" positions, that it found 
the marketers had failed to abide by last week's agreement, 
and that they should revert to a 34 naira per liter gas price 
"in the interest of peace."  Nonetheless, Anthony Jones, the 
American Country Director of the AFL-CIO's Solidarity Center 
in Nigeria (strictly protect), told Labor Officer that the 
NLC feels the governors are backing away from their earlier 
support of labor's position that prices should remain at 34 
naira for the short-term.  In a lengthy conversation with 
Econoff within hours of the meeting, John Pototsky, Managing 
Director of Mobil (strictly protect), characterized the 
meeting as acrimonious and divisive, and the formation of a 
technical committee as a sham to waste more time without 
implementation of deregulation. 
¶5. (S/NF)  Pototsky, clearly distressed and angered by the 
day's events, told Econoff that during the meeting, the NLC 
issued threats that Mobil stations will be burned down if the 
company does not revert to 34 naira per liter for gas prices. 
 He said he asked why his company was being singled out for 
such action, and was told it was because some Mobil stations 
sold fuel above 34 naira during the last week, and others 
were most noticeably closed last weekend, after the 
strike-averting agreement was to take effect.  Pototsky said 
he explained to the Committee his dealers closed last weekend 
and early this week for two reasons: 1) NLC road transport 
workers blockaded a Mobil tanker truck parking lot, 
preventing drivers from re-supplying stations running empty 
in the crush of consumers who were panic-buying, and 2) many 
station managers found NLC members taking over their gas 
pumps, ostensibly to ensure that fuel was sold at 34 naira 
but with no control, and at some stations union members were 
attempting to remove fuel directly from underground storage 
tanks.  Pototsky told Econoff he portrayed the situation to 
the Committee as a security and supply problem, forcing his 
stations to close hurriedly.  Pototsky said that when he 
offered this explanation to the Committee, NLC leader Adams 
Oshiomhole left the room to consult with other union leaders, 
only to return saying "the MD of Mobil is lying.  Such events 
did not take place." 
¶6. (S/NF) Pototsky stressed to Econoff his belief that Mobil 
stations will be targeted for union action in the coming 
days, and that he does not discount the use of vandalism or 
violence.  Union officials told Consulate staff that a 
directive has gone to all state councils urging mass action 
and disruption of sales of gasoline at stations selling above 
34 naira per liter, beginning Monday, October 20.  The leader 
of the activist group United Action for Democracy (UAD), an 
umbrella organization for many NGOs that led the fight 
against Abacha, told Poloff that his members will support any 
NLC call to mass action.  Newspapers report the unions are 
enlisting the aid of the Oddua People's Congress (OPC), a 
militant Yoruba faction in Southwest Nigeria, to help enforce 
a 34 naira pump price.  Pototsky said his belief that his 
stations are at great risk in the coming days will force him 
to decide whether he "caves in" and officially sells gasoline 
at 34 naira, or "holds out" on his belief that the Petroleum 
Products Pricing Regulatory Authority (PPPRA) deregulated the 
downstream market as of October 1, letting him sell at market 
prices.  Pototsky said he expected a conversation with the 
head of PPPRA on October 17, during which he would seek 
assurances that the PPPRA and presidency support the 
marketers' view that deregulation has occurred, and market 
price prevails.  If he does not get such assurances, he will 
most likely instruct his dealers to sell gasoline at 34 naira 
per liter.  If he gets sufficient indication that the 
administration will support marketers, he will beef up 
security at his stations and sell at market price, somewhere 
around 39 to 40 naira per liter. 
¶7. (S/NF) Other marketers will face the same decision as 
Pototsky in the coming days.  Fuel cargo imported by the 
private marketers under a Unipetrol contract arrived in Lagos 
last weekend (ref A), and another was expected on October 16 
or 17.  News reports peg the landed price of this fuel at 33 
naira per liter.  On October 6, Texaco executives told 
Consulate officers that the company's "break even price" was 
near 45 naira per liter. Pototsky told Econoff on October 16 
he could profitably sell at a price six to seven naira above 
landed cost, which would include transportation costs and 
"bridging fees" (because of poor pipelines, the GON must 
truck fuel from the port of Lagos to depots nationwide to 
ensure fuel supply outside of the Lagos environs -- this 
process remains no guarantee as cities in the North and East 
are often without fuel).  Demurrage fees (those charged by 
the owners of ships for each day a cargo vessel remains in 
port to offload) add a significant variable to fuel costs in 
Nigeria because of the state of disrepair of the Lagos port 
fuel terminal. 
¶8. (S/NF) Pototsky told Econoff that an industry 
representative asked the NLC what the marketers are to do 
with the fuel they imported last week, which cannot be sold 
profitably at 34 naira (while last week's shipment was 
eventually disclosed in the press, it is unclear if, at the 
time of the stakeholders meeting, the NLC was aware of the 
shipment expected to reach port October 16/17).  He said the 
NLC replied they should leave it in their tanks until the 
stakeholders Technical Committee reaches an agreement on 
higher pump prices.  Pototsky said marketers may do just that 
for at least one or two weeks, but to do so would require all 
retailers to rely solely on fuel supplies from the Nigerian 
National Petroleum Corporation (NNPC), presumably at 
subsidized rates, and he is not certain how long NNPC can 
continue to provide fuel in sufficient quantities to meet 
anything near demand levels (ref C).  Pototsky indicated he 
is not ready to begin further shipments anytime soon. 
¶9. (S/NF) Comment.  Both fuel supply and price will remain 
uncertain in the coming weeks.  The decision by Mobil whether 
to sell at market price or revert to the former government 
imposed ceiling will likely set the trend for all other 
marketers.  The uncertainty of this situation will linger as 
long as labor acts brashly to save face, and the government 
fails to intercede on behalf of the marketers in line with 
the deregulation plan marketers insist the administration 
promised would take immediate effect.  End Comment.